France Telecom bail-out faces EC probe

Pukka loan, or state aid?

The European Commission has been forced to launch a formal investigation into whether the French government's €9bn ($9.3bn) assistance to France Telecom SA breaches regulations that ban state aid.

As third-placed French mobile operator Bouygues Telecom SA has made a complaint to regulators, they had little option but to investigate. Competition commissioner Mario Monti described it as a "very important case" and said that third parties will have an opportunity to make their views known.

Given that the French government has a 55% holding in France Telecom, it has little option but to prop up the debt-laden company to the disadvantage of its private-sector competitors. The big question is whether European regulators can persuade the French government to sell its stake in the company and let France Telecom sink or swim as a private company.